Taxation of Investment Income
Not all investment income is taxed the same. Thanks to Congress, the federal tax code regarding your investments is constantly changing, and keeping up with these changes is important to optimize the tax efficiency of your portfolio. Remember, it’s not what you make but what you keep that counts.
The main determinants of federal investment income tax rates are your annual income and the type of investment income earned: interest income, dividend, and capital gains. Investments such as savings accounts, certificates of deposit, money markets, annuities, and taxable bonds (as opposed to municipal bonds) produce taxable interest income. This income is considered ordinary income and is taxed at an individual’s ordinary income tax rate, which ranges from 0% to 39.6%.